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Monday, 4 July 2005

What do consent figures tell us about the property boom?

The number of Building Consent applications for new homes has plummeted (Bob Dey has figures here), promptingsome speculation that the property boom is turning south. Maybe so, but I wouldn't be making those predictions based on these figures alone.

Fact is, there are a lot of other reasons for consent figures to plummet, most of them involved with out of control red tape flowing on from the leaky homes hysteria:

the many, many changes to the building code, which taken together have delayed the preparation of plans to be submitted for consent ;

the legion of associated uncertainties with these code changes, particularly as to who shoulders the risk should the prescribed methods, materials and details fail;

the long, long, loooong delays in getting consents processed;

the lengthy lead-times just to get an appointment to submit your consent application;

the number of builders and developers who have chosen to leave the industry because of much of this nonsense, a number which anecdotal evidence suggests is high.

Given all these impediments, it seems to me that you shouldn't take a drop in consent figures alone as evidence of an end to the boom, no matter the size of the decrease.

4 comments:

Of course, one piece of economic data is never proof. But neither does the latest data suggest that the housing boom is going to continue.

Take a look at the regional median house prices. Compared against year ago values the major metropolitan areas are now down to 10-12% growth after having hit high teens-mid twenties. The provincial areas are lagging - still around 20-25% but typically follow the cities with a lag. Anecdotal evidence also shows that a lot of investors decided that urban houses were too expensive (the rental yield in most cities has now slipped to below 4%) and started buying up outlying towns.

Builders are also seeing a slowdown in future work orders. That may have helped to contribute to the decision for those exiting the industry.

The market will slowdown. The important distinction to recognise is that to say it is slowing is not the same thing as saying the market is collapsing. Perhaps it is better to call the market a balloon rather than a bubble: no bang, just plenty of hot air being expelled making amusing noises while it deflates.

I agree that consents per se don't mean terribly much. Of course or dear pundits who have been calling Armageddon for the last 5 years (including Gareth Morgan) jump on any whiff of bad news, no matter how irrelevant, to back-up their laughable forecasting abilities.

On a side note, I see in today's public notices that Richard Priest Architects Ltd have gone into liquidation. Richard Priest was one of Auckland's more prominent architects, do you have any idea what happened there Peter? My instincts tell me that architects would only do this in a property boom to pre-empt any comeback over leaky homes?